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Today’s Oil and Gas Update – Providence Resources and more…

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Non-Independent Research; Marketing & Sales Commentary – MiFID II exempt information – see disclaimer below

 

 

Market Update: Monday 01 December 2020

Lansdowne Oil & Gas* (AIM:LOGP), Providence Resources (AIM:PVR): Barryroe Farm-out confirmed

Caspian Sunrise (AIM:CASP): Operational challenges at Deep Well 5 affecting gross production

Enwell Energy (LON:ENW): Mekhediviska-Golotvshinska licence extension confirmed

Genel Energy (LON:GENL): Government payments for oil sales

Gulf Keystone Petroleum (LON:GKP): KRG pays US$7.5m for October sales

 

Energy Prices         

Brent Oil US$47.6/bbl vs US$47.8/bbl yesterday

WTI Oil US$44.5/bbl vs US$44.8/bbl yesterday

Natural Gas US$2.89/mmbtu vs US$2.92/mmbtu yesterday

 

Oil Price News 

Oil prices slipped yesterday over uncertainty about the OPEC+ meeting originally scheduled for 13.00GMT today

Brent Crude January contracts fell 1.2% to $47.59/barrel and WTI for January fell 0.4% to $45.34/barrel

Key discussions between ministers on Sunday failed to reach a consensus talks have been delayed until Thursday

Consensus expectations are for a 3-month delay to output increases. No extensions represent a $5/barrel downside from current spot levels (Reuters)

Vaccine roll out and an improved demand outlook has cast some doubt on for how long OPEC+ may delay production increases

The UAE reportedly has issues with quotas and Kazakhstan has raised concerns about an extension to production cut

A Reuters poll of 40 economists/analysts forecast Brent average prices of $49.35/barrel next year as participants suggest prices will struggle to maintain upward movement next year as winter lockdowns endure and impact the demand outlook

The US rig count has risen by 10 to 241, while the Canadian rig count rose by 1

In the medium term a Biden administration with a focus on clean energy may hamper further supply increases

 

Gas Price News

Prices rose ~4% yesterday as forecasts suggest cooler weather for Southern USA

US consumption rose 22.8% last week compared to the previous week (EIA data)

US shale output could increase moving into next year as producers have increased spending on the back of forecasts for a 45% increase in gas prices next year compared to more sanguine expectations for oil prices.

A US Energy Information Administration forecast suggests LNG exports could average 8.4Bcf/day in 2021, a 31% increase on 2020

Prices have benefitted from reductions in oil output as associated gas produced as a by-product of drilling has subsequently fallen

Natural gas prices rose on inventory draws in line with expectations last week, inventory levels were 3,940Bcf on November 20th according to the EIA, a net decrease of 18Bcf from the previous week

Stocks had been 322Bcf greater than this time last year and 250Bcf above the five-year historical average

There has been an improvement in the 10-15 day weather forecast with colder weather expected for the first week of December in the US

Norwegian gas exports could be hit by a security worker strike at the Nyhamna processing facility

Exports from the facility which has a capacity of 84m mcm of gas per day will be cut by 500Mcm (Reuters)

 

Company News

Lansdowne Oil & Gas* (AIM:LOGP), Providence Resources (AIM:PVR) Barryroe Farm-out confirmed

(AIM:LOGP) – Share price: 1.5p, Market Cap: £11.9m

(AIM:PVR) – Share price: 6.4p, Market Cap: £49.1m

In a landmark transaction, Lansdowne and Providence have agreed to Farm-out a 50% working interest in the Barryroe Oil and Gas field to SpotOn Energy, a Norwegian based resources company partnering with a Consortium of International Service Providers to fund, develop and produce the asset.

The field lies c.50km off the south coast of Ireland in shallow water (c.100m water-depth) and is one of the largest undeveloped oil and gas fields offshore Europe, with independently audited 2C resources of 346MMboe and significant further resource potential in additional reservoirs.

The SpotOn Consortium will fund 100% of the Early Development Programme (EDP) and the Full Field Development.

The EDP, which includes four wells and floating production facilities, is designed to both appraise and produce the Barryroe Field, generating the technical data required to optimise the Full Field Development Programme.

The SpotOn Consortium holds the experience, financial wherewithal and expertise to move ahead with the Barryroe project.

SpotOn will finance Lansdowne and Providence’s 50% share of the EDP costs by way of a Non-Recourse Loan, which is secured against future Barryroe production cashflows.

SpotOn will subsequently have a 50% interest in SEL 1/11 which includes the Barryroe oil and gas field.

Lansdowne will retain a 10% interest, and Providence a 40% interest in SEL 1/11.

The farm-in is conditional upon SpotOn confirming that a minimum of US$166m in funding (the agreed funding), for the Early Development Programme (EDP) is in place and Irish government approval for the farmout agreement has been received.

In any case, SpotOn has provided a US$5m non-recourse loan to Providence to fund the preparatory and permitting works required to progress the EDP Work Programme for Barryroe.

SpotOn will also provide finance, by way of non-recourse loan facilities, for the remaining 50% of agreed cost obligations attributable to Lansdowne and Providence in respect of the EDP Work Programme and the Full Field Development.

The funding will incur a blended average annual interest rate of less than 8% through the repayment period which will be repayable from SEL 1/11 production cashflow.

SpotOn is entitled to 80% of the net production cashflow from SEL 1/11 until the debt is repaid.

Following debt repayment, SpotOn will be entitled to 50% of the net production cashflow from SEL 1/11 with Lansdowne and Providence being entitled to 10% and 40% of net production cashflow, respectively.

Our take: After the best part of a decade, the SEL 1/11 partnership looks to have successfully finalised the much-anticipated farm-out of the potentially ‘world class’ Barryroe field. Yesterday’s announcement confirms an impressive consortium led by SpotOn Energy (Schlumberger, Aker Solutions, AGR, Maersk Drilling, Keppel FELS, and Aibel AS) underlining the excellent technical and operational credentials, further validating the Barryroe field, which is a shallow water conventional development. Barryroe remains a key strategic asset for Ireland in our view and given the recent shut in of the Kinsale gas field, we and could represent the next stage of the country’s long-term energy security. Clearly there has been a large element of profit taking in the shares since the announcement, and we are of the view that both partners (LOGP and PVR) are trading at compelling discounts to NPV against the backdrop of this landmark transaction for offshore Ireland.

*SP Angel acts as Nominated Advisor and Broker to Lansdowne Oil & Gas

 

Caspian Sunrise (AIM:CASP): Operational challenges at Deep Well 5 affecting gross production

Share Price: 2.25p, Market Cap: £37m

Operations at Deep Well 5 have been hampered by a pipe stuck at the intersection where the sidetrack commences.

If the latest attempts to remove the blockage fail, the Company plans to pause operations at Deep Well 5 to use the rig at other wells.

According to management, there has been some positive signs in that work to shift the blockage is working.

Once freed, a 180m section of liner and tubing will be removed to allow further work over activities to establish flow on a commercial basis.

Acid treatment at Deep Well 6 has been inconclusive, pressure data suggests reservoir connectivity and permeability have improved.

The Company plans to use the rig at Deep Well 5 to continue the cleaning process.

The MJF Field is producing at rates of 1,300-1,500bopd, whilst average daily production is 1,445bopd.

No production is permitted at the South Yelemes structure until a license upgrade is received, there has been no formal progress in this respect.

Testing continues at New Well 151, oil flowing at a rate of 70-80bopd with a target production of 150bopd.

At New Well 141 the Company is working to install a pump in the well, management is targeting production of approx. 200bopd.  

Payments to the Kazakh regulatory authorities have been confirmed at US$32m (historic costs) for the BNG Contract Area against the MJF structure payable over 10yrs in quarterly instalments will prevent further drilling of new wells.

As a result, the Company will focus on cash conservation and maintenance of operations at current levels.

Our take: The Company is appealing the assessment of historic costs but in the short term investors will not be inspired by the inability to fund further exploration in our view. Revenue from improved production at wells on the MJF Field will go towards paying off the Kazakh government obligations so improvements here might not brighten the outlook.

 

Enwell Energy (LON:ENW): Mekhediviska-Golotvshinska licence extension confirmed

Share Price: 23p, Market Cap: £74m

Enwell has confirmed the grant of an extension of its Mekhediviska-Golotvshinska (MEX-GOL) production licence in north-eastern Ukraine.

The MEX-GOL production licence was granted in July 2004, for a duration of 20 years, and covers an area of approximately 126 km2.

The Company has a 100% working interest in, and is operator of, the licence, which is adjacent to the Svyrydivske (SV) production licence.

The Company produces gas, condensate and LPG from these fields.

In order to facilitate the full development of the MEX-GOL field over its anticipated economic life, which is assessed to be until 2038 based on the reserves assessment undertaken by DeGolyer and MacNaughton, the Company applied to extend the MEX-GOL licence.

On 30 November 2020, an extension of the licence was granted for a period of 20 years.

Out take: 2020 has been a robust operational year so far, with record production from the MEX-GOL, SV and VAS fields helping to offset the continued impact of lower gas prices. The Company’s solid production base in tandem with its robust cash resources position ensures Enwell can sufficiently navigate the challenging sector backdrop, despite current reduced commodity prices.

 

Genel Energy (LON:GENL): Government payments for oil sales

Share Price: 136.6p, Market Cap: £379m

Payments received from the Kurdistan Regional Government for oil sales in October 2020.

The Taq Taq partners have received a gross payment of US$4.0m, with Genel’s net share of the payment being US$2.2m.

The Tawke partners have received a gross payment of US$32.8m, with Genel’s net share of the payment being US$8.1m.

Our take: Whilst the payments are optically low relative to historical receivables, the Operator DNO has stated that gross production at the Tawke licence in the KRI including the Tawke and Peshkabir fields, is expected to average 100,000bopd this year with a year-end projecte rate of 85,000bopd absent any new wells. Genel’s share price has held up well in our view against the subdued sector backdrop due to its low-cost production, strong balance sheet and a robust dividend policy.

 

Gulf Keystone Petroleum (LON:GKP): KRG pays US$7.5m for October sales

Share Price: 92.50p, Market Cap: £196m

The Company confirms a gross payment of US$9.6m (US$7.5m net to GKP) has been received from the Kurdistan Regional Government for Shaikan crude oil sales during October.

Our take: With the Company’s ongoing prudent approach to managing its financial position and the decisive measures taken to reduce its cost structure to preserve liquidity, GKP remains financially resilient to manage through the current macro environment in our view. While waiting to resume the 55,000bopd project, the Company has identified a number of simple, low-cost, high-impact investments that have the potential to increase the current base level of gross production by c.5,000bopd and, subject to a satisfactory operating environment, could be implemented in the near-term.

 

Research – Oil & Gas

Sam Wahab – 0203 470 0473 / 0784 385 5037

[email protected]

 

Sales

Richard Parlons – 020 3470 0472

Abigail Wayne – 020 3470 0534

Rob Rees – 020 3470 0535 

Grant Barker – 020 3470 0471  

 

SP Angel                                                            

Prince Frederick House

35-39 Maddox Street London

W1S 2PP

 

+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.

 

Sources of commodity prices

 

Oil Brent, WTI

ICE

Natural Gas

NYMEX

 

 

Disclaimer   Non-Independent Research

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Recommendations are based on a 12-month time horizon as follows:

 

Buy – Expected return >15%

Hold – Expected return range -15% to +15%

Sell – Expected return < 15%

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